minority

What gave rise to minority protection in corporate governance?

Majority rule. Minority protections exist to check abuses by those controlling the company.

What are the two key questions asked under majority rule/minority protection?

1. Who is the proper plaintiff? 2. Should the court interfere in how the company is run?

What is the Rule in Foss v Harbottle? (S.341 CAMA)

Only the company itself can sue for wrongs done to it, and it alone can ratify irregularities. Cases: Foss v Harbottle (1843); Abubakari v A.R.E.C; Edokpolor v Sem-Edo Wire; Shell v Nwawka; Yalaju-Amaye v A.R.E.C; Elufioye v Halilu.

What are the two limbs/classifications of the Rule in Foss v Harbottle?

1. Proper Plaintiff Rule – company is the proper plaintiff; 2. Internal Management Rule – courts won’t interfere where majority can act or ratify.

Why does the Rule in Foss v Harbottle exist?

The company is a separate legal person; it preserves majority rule; prevents multiple suits; avoids futile litigation; prevents court interference in internal affairs.

Does the Rule in Foss v Harbottle apply beyond companies?

Yes – it applies to any incorporated or unincorporated body with a constitution. Case: Abowaba v Smith.

List all exceptions to the majority rule (from Foss v Harbottle, S.341 CAMA).

1. Members’ Direct Action – S.343; 2. Personal Action – S.344; 3. Representative Action – S.344; 4. Derivative Action – S.346; 5. Unfairly Prejudicial/Oppressive Conduct – S.353; 6. Investigation – S.357; 7. Winding up on just & equitable ground.

What reliefs are available under Members’ Direct Action? (S.343 CAMA)

Injunction; Declaration (No damages).

What are the grounds for a Members’ Direct Action? (with cases)

a. Illegal or Ultra Vires Transactions. Cases: Parke v Daily News, Hogg v Cramphorn, Ashbury Railway v Riche, Smith v Croft. b. Doing by ordinary resolution what requires special resolution. Case: Edwards v Halliwell (trade union increased fees without required 2/3 majority). c. Infringement of individual membership rights (e.g., voting rights). Case: Pender v Lushington (voting is a proprietary right). d. Fraud on minority or the company. Case: Cook v Deeks (directors diverted contract to themselves). Additional case: Daniels v Daniels (fraud not proven but negligence sufficed). e. When meeting cannot be called in time. Case: Hodgson v NALGO. f. Directors benefit from negligence or breach. Case: Daniels v Daniels (sold property at gross undervalue). g. Omnibus clause — where interest of justice demands (No case required).

What is a personal action? (S.344 CAMA)

An action where a member enforces a personal right owed to him. Case: Pender v Lushington.

What is a representative action? (S.344 CAMA)

A member sues for himself and other affected members with the same interest.

What remedies are available under Personal & Representative Actions? (S.344 CAMA)

Damages; Injunction; Declaration (Court may award personal costs).

Who is a 'member' for purposes of S.343 - S.344 CAMA? (S.345 CAMA)

Personal representatives of deceased members; Persons with shares transferred/transmitted by operation of law.

What is a derivative action? (S.346 CAMA)

A member sues on behalf of the company, with leave of court, because those in control refuse to act.

What are the cumulative requirements for court leave in a derivative action? (S.346(2), CAMA)

1. Cause of action exists (negligence, breach, default, breach of trust); 2. Reasonable notice given; 3. Directors failed to diligently act; 4. Factual basis of loss; 5. Applicant acting in good faith; 6. Best interest of company; 7. Wrongdoers are in control.

Who may bring a derivative action? (S.352 CAMA)

1. Registered/beneficial holders (current or former); 2. Director/officer (current or former); 3. CAC; 4. Any proper person the court approves.

What orders may the court grant in a derivative action? (S.347 CAMA)

1. Authorize applicant to control action; 2. Give directions for conduct; 3. Direct payment to security holders; 4. Order company to pay legal fees (including interim costs).

What is unfairly prejudicial conduct? (S.353 CAMA)

Conduct that is ongoing and unfairly prejudicial or oppressive to a member or members. Not a one-off act. No intent required.

Who may petition for relief against unfairly prejudicial/oppressive conduct? (5 categories in S.353 CAMA)

Member; Creditor; Director/officer (current or former); CAC; Any proper person.

What cases illustrate oppression in the context of unfairly prejudicial conduct?

Case: Re H.R. Harmer Ltd — father oppressed minority children.

What orders can the court make regarding unfairly prejudicial/oppressive conduct? (S.355 CAMA)

1. Winding up; 2. Regulating future conduct; 3. Forced share purchase (members/company); 4. Setting aside transactions; 5. Directing/authorizing litigation; 6. Compensation; 7. Investigation; 8. Appointment of receiver/manager; 9. Injunction; 10. Mandatory orders.

Who may apply for investigation of a company? (5 categories, S.357 CAMA)

1. Members holding 10\%; 2. Members holding 10\% in non–share capital company; 3. The company; 4. CAC (suo moto); 5. Court order.

What circumstances justify investigation of a company? (S.358 CAMA)

1. Fraud against creditors; 2. Unfairly prejudicial conduct; 3. Company formed for fraudulent purpose; 4. Directors guilty of fraud/misfeasance; 5. Members denied expected information.

What powers do inspectors have during an investigation? (S.317 - S.318 CAMA)

Demand books/documents; Demand appearance of officers; Inspect bank accounts of directors.

What are the consequences of an investigation of a company?

a. Civil proceedings: CAC may sue in the name of the company (S.364). b. Criminal proceedings: AGF prosecutes offenders (S.365). c. Winding up: CAC may petition for winding up (S.366). d. Inspector’s report admissible: Inspector’s report is prima facie evidence in court (S.368). e. Investigate true ownership: Inspector may determine beneficial owners of company (S.369).

Who is entitled to the inspector’s report? (S.363 CAMA)

1. Company; 2. Court; 3. Any member; 4. AGF; 5. Auditor; 6. Persons named in the report; 7. Applicants; 8. Persons financially affected.

What is the minority protection regarding variation of class rights? (S.142 CAMA)

15\% of class shareholders may apply to court to cancel variation.

What is the minority protection regarding alteration of objects? (S.46 CAMA)

15\% of issued share capital may challenge alteration.

What is the minority protection regarding winding up on just & equitable grounds?

Any member may petition (S.408(e), CAMA).

What is the minority protection regarding requisition of a meeting? (S.215(3), CAMA)

10\% of paid-up capital can requisition a meeting.

What is the minority protection regarding re-registration objections? (S.53(3), CAMA)

Members with 5\% may apply to cancel re-registration.

What is the minority protection regarding schemes of reconstruction? (S.538 CAMA)

Dissenting members can demand purchase of shares.

What section of CAMA codifies the Rule in Foss v. Harbottle?

Section 341 CAMA.

Which section provides for Members’ Direct Action?

Section 343 CAMA.

Which section provides for Personal & Representative Actions?

Section 344 CAMA.

Which section provides for Derivative Action?

Section 346 CAMA.

Which section lists persons who may bring a Derivative Action?

Section 352 CAMA.

Which section provides for Unfairly Prejudicial or Oppressive Conduct?

Section 353 CAMA (petition); Sections 354 – S.355 (reliefs).

Which section provides for Investigation of a Company?

Section 357 CAMA.

Which section lists circumstances warranting CAC investigation?

Section 358 CAMA.

Which section covers Inspector’s Report as Evidence?

Section 368 CAMA.

Which section empowers CAC to bring civil proceedings after investigation?

Section 321 CAMA (older numbering in text); combined effect in 2020 CAMA is under Section 364.

Why did minority protection arise in corporate governance?

Because of majority rule — to protect minority interests when majority control risks abuse.

What basic questions arise re: corporate mismanagement?

Who is the proper plaintiff? Should courts interfere with company management?

What is the principle established by Foss v. Harbottle?

Only the company can sue for wrongs done to it; only the company can ratify irregular conduct.

Which section of CAMA restates the Foss v. Harbottle rule?

Section 341 CAMA.

What did Foss v. Harbottle decide about two shareholders suing separately?

The court refused the claim — the company is the proper plaintiff.

Does Foss v. Harbottle apply to unincorporated associations?

Yes — applies where association has constitution and capacity to sue/be sued.

What are the two principles/classifications in Foss v. Harbottle?

1. Company is the plaintiff for wrongs to it; 2. Courts won’t interfere where majority can remedy by ordinary resolution.

Give one logical reason for the Foss rule.

A company is a separate legal person and it is the entity that suffers loss.

How does the rule preserve corporate democracy?

It preserves majority rule by letting the majority ratify or remedy internal issues.

How does the rule prevent court overload?

By avoiding multiple, futile suits from many shareholders.

Why would litigation be pointless when shareholders can ratify?

Because a general meeting could validate the disputed act, making litigation unnecessary.

List the exceptions to Section 341 (when others may sue).

Members’ direct action (s.343), personal/representative action (s.344), derivative action (s.346), unfairly prejudicial petitions (s.353), investigation (s.357), winding up.

What remedies are available under Members’ Direct Action (S.343)?

Injunction or declaration only (no damages).

Can Members’ Direct Action be personal or representative?

Yes — it could be either.

Under s.343(a), when can a member seek an injunction?

To restrain the company entering an illegal or ultra vires transaction.

Can majority ratify an ultra vires act?

No — in Ashbury Railway v Bridge majority could not ratify ultra vires acts.

Under s.343(b), what breach can be challenged?

Acting by ordinary resolution where a special resolution was required.

s.343(c) protects what type of rights?

Individual rights of members (e.g., voting rights, dividends).

Example case for voting rights protection?

Pender v Lushington — voting is a property right.

What does s.343(d) address?

Fraud on company or minority where directors fail to act.

If company property is sold at gross under-value to an innocent third party, can directors be sued?

Directors may be liable; but third party protection depends on innocence and equity (see Daniels v Daniels).

What does s.343(e) allow when meetings cannot be called timely?

Minority can apply to restrain actions if waiting for a meeting is impracticable.

Under s.343(f), when can members sue regarding director benefit?

Where directors profit or are likely to profit from negligence or breach of duty.

What is the ‘omnibus’ exception in s.343(g)?

Any other act/omission where interest of justice demands relief.

What is a Personal Action (s.344)?

A suit by an individual member to enforce a personal right (e.g., unpaid dividend).

What is a Representative Action (s.344)?

A suit by one/group on behalf of others for breach of a common right.

Remedies available for Personal/Representative Actions?

Damages, declarations, injunctions; court may award costs to applicant personally.

How does s.345 define “member” for s.343–344 purposes?

Includes personal reps of deceased members and persons to whom shares transmitted by law.

What is a Derivative Action (s.346)?

A suit by a shareholder, with leave of court, in the name of the company for wrongs done to the company.

In derivative suits, who gets the benefit of any recovery?

The company — the action is for the company’s benefit.

Is leave required for derivative actions?

Yes — leave of court is required.

Must applicants give security for costs in derivative actions?

No — applicants are not required to give security for costs (unlike some personal actions).

Can derivative suits be stayed just because shareholders approved the act?

No — approval may be considered but is not alone a ground to stay/dismiss.

Who can bring derivative actions under s.352?

Registered/beneficial security holders (current/former), directors/officers (current/former) of a public company, CAC, or any person the court deems proper.

How is leave to bring a derivative action obtained?

By originating summons supported by affidavit and written address to FHC.

List key grounds the court considers before granting leave for derivative action (s.346(2) CAMA).

Cause of action exists; notice given; directors failed to act; potential damage; good faith; best interest of company; wrongdoers in control.

What orders can court make after granting derivative action (s.347 CAMA)?

Authorise applicant to control action; give directions; order payments to security holders; require company to pay legal fees.

Main difference between derivative action and members’ direct action?

Derivative protects the company, members’ direct action protects members’ rights.

What is relief under unfairly prejudicial/oppressive conduct (s.353 CAMA)?

Member may petition the court for relief if affairs conducted oppressively or unfairly prejudicially.

Must oppressive conduct be intentional?

No — it need not be intentional but must be ongoing not isolated.

Who may petition under s.353(1) CAMA?

Member, creditor, director/officer (current/former), CAC, or other court-proper person.

List key orders the court may grant under s.355(2) CAMA.

Winding up; regulate future conduct; buyout shares; company buy shares; institute/prosecute actions; vary transactions; direct investigation; appoint receiver; restrain acts; require specific acts.

What does s.357(1) CAMA provide?

CAC may appoint inspectors to investigate company affairs and report.

Who may apply for investigation (s.357(2) CAMA)?

Members holding {\ge}10\% of class; in companies without share capital {\ge}10\% of members; the company; CAC; court order.

What circumstances may warrant CAC investigation (s.358(2) CAMA)?

Conduct with intent to defraud creditors; acts prejudicial to members; fraud/misfeasance in formation/management; members denied material information.

What protections exist for company employees assisting inspectors?

Employees must be protected from discrimination; wrongful dismissal due to disclosure triggers compensation (calculated as if they reached retirement).

Who prepares the inspector’s report?

The appointed inspector(s) — report is made to the CAC.

What civil powers flow from an inspector’s report?

CAC may bring civil proceedings in public interest in the name/on behalf of company (s.364 CAMA).

What criminal action follows an inspector’s report?

Report referred to AGF for prosecution if criminal liability found (s.365 CAMA).

Can CAC present a winding-up petition after inspection?

Yes — if inspector’s report makes winding up expedient in public interest (s.366 CAMA).

Is an inspector’s report admissible in court?

Yes — certified copy is admissible as evidence of inspector’s opinion (s.368 CAMA).

What additional investigation power can CAC use to discover true ownership?

Investigate membership to ascertain persons financially interested or controlling policy (s.369 CAMA).

Who may receive the inspector’s report (s.363 CAMA)?

The company, court (if ordered), any member, AGF (if criminal), auditors, persons named in report, applicants, any person whose financial interest is affected (on request/fee).

What statutory minority protections beyond litigation exist in CAMA 2018?

Restrict dual Chair/CEO; full disclosure of conflicts; preserve preemptive rights; expand board liability for related-party losses; disqualify erring directors; independent directors for public companies; minority consent for sale of >51\% assets.

What percentage of minority is required to apply to CAC for investigation?

10\% (one-tenth) of class of shares or members as applicable.

If inspectors request documents or officers’ attendance, what are their powers?

Inspectors can demand books/documents, call officers, demand assistance, call for directors’ bank accounts (s.317–318 CAMA).

What compensation is due to employees unfairly dismissed due to cooperating with inspectors?

Calculated as if they had reached maximum retirement age or served maximum service period — monetary compensation, not reinstatement.

Can an inspector’s report be forwarded to the auditor?

Yes — the report may be forwarded to auditors or persons mentioned in it.